Force Majeure and Delays in the Time of COVID-19

All construction projects have been affected, are being affected, or will be affected at some point by the COVID-19 pandemic.  The various emergency orders put in place by different levels of authorities, from states to cities and everything in-between, have created labyrinth of rules difficult to navigate.  Subcontractors, suppliers, and labor for each project will respond differently to their unique circumstances and respective projects.  It is likely that your project will be impacted.

Despite these challenges, there are steps contractors can take in the face of potential impacts and delays caused by COVID-19 and resulting emergency orders.  This article is intended to provide general information about force majeure and delays on your projects.  The principles that guide your response to potential impacts or delays due to COVID-19 are no different than what you would do in more “normal” times: look to your contract and communicate with your customer/client.

Most contracts will have either a “force majeure”, “act of god” provision, or both.  Generally, in the event of a force majeure event, contractors are entitled to extra time to complete their work.  (See, e.g., AIA A201 General Conditions, section 8.3.)  Even if your contract does not specifically identify “epidemic”, “pandemic”, or “quarantine” (or similar language) as a force majeure event, state or federal law applicable to your contract likely provides that performance is excused under certain circumstances.  (See, e.g., California Civil Code sections 1511 and 3526.)

Your contract likely has a notice provision requiring notice to the owner or general contractor (in the case of subcontractors).  Although practically speaking a court will likely not require strict adherence to the notice provisions given the current circumstances, it is good practice regardless to maintain candid, direct communication with your customer or client.

The notice or delay provisions in your contract likely contain language similar to: “Within forty-eight hours of an event occurring that results in delay, or within forty-eight hours of Contractor becoming aware of an event that may result in delay, Contractor shall provide written notice….”

When you provide notice, you can include information such as:

• Identifying the desire to maintain the partnership with the owner/general contractor and complete a successful project on time;
• Identification of the emergency orders or declarations by governmental authorities;
• Simple clear statement that COVID-19 emergency orders or circumstances may result in impacts or delays;
• Identification of the costs that may be impacted (these are examples and not an all-inclusive list) material escalation, labor escalation, delays or lag in material deliveries, de-mobilization and re-mobilization;
• A statement that you are complying with the safety and legal requirements of any emergency orders in place;
• Reiterate the value to your company of the project and relationship with the client/customer

(For additional resources and a more comprehensive form letter for notice of delays, a good start is https://www.agc.org/coronavirus/contract-resources)

Legally, and almost certainly contractually, there is an obligation to mitigate delays, impacts, and damages resulting from each.  But, the costs for such efforts could be recoverable.  There may also be delays in permitting or other duties that the contract obligates the owner or general contractor to discharge, and extra costs caused by resultant delays may be recoverable.  Compliance with heightened safety requirements and social distancing requirements in a project’s jurisdiction could result in extra costs that are recoverable.  It makes sense to develop separate cost codes to track the costs unique to delays or impacts of COVID-19, and the costs to mitigate those delays or impacts.  If you do incur additional costs to mitigate delays or impacts, or to comply with new, heightened safety requirements, it is good practice to provide your client/customer notice as well.

As Oles Morrison continues to help clients work through some of these challenges, it has been heartening to see the spirit of teamwork demonstrated by all project stakeholders.  The other theme that cuts across our recent experience is that this teamwork flowed from early, direct, cordial communication supported by each participant’s understanding of its contract.  Despite the difficulties contractors are encountering, the fundamental principles of knowing your contract and maintaining open communication can provide a foundation for managing a challenging time.

Liam K. Malone, Attorney, 510.903.2013

This document is intended to provide you with general information regarding the impact of the novel coronavirus pandemic. The contents of this document are not intended to provide specific legal advice. If you have any questions about the contents of this document or if you need legal advice as to an issue, please contact your regular Oles Morrison Rinker & Baker LLP attorney.